Is it Wise to Increase Your Credit Limit?
Sep 01, 2016
Once you’ve built up a credit history, you have great power at your fingertips. Many banks and financial institutions will want to offer you credit, but should you increase your credit limit? What are the benefits to having a higher credit limit, and can it hurt your credit score or your ability to get credit in the future?
Credit and credit scores are a complex beast, especially since you likely have several credit scores, and they are all calculated differently. The decision to increase or lower your credit limit will impact your credit scores in different ways and could impact how much you pay in interest and what loans you are able to receive in the future. The decision to get more credit, even if you don’t use it, shouldn’t be taken lightly.
The Pros of Increasing Your Credit Limit
The best thing about getting more credit is that it lowers your credit utilization rate. This is a formula the credit bureaus calculate by taking how much you owe and dividing it by how much credit you have across all accounts. A credit utilization rate of around 20%-30% or less is ideal. According to Credit Karma, a personal finance website, you get the highest credit score by having a 1%-10% credit utilization rate, and the score goes down slightly for every 10% more you have used.
Therefore, getting more credit may improve your credit score if you’re above 11% and may improve your credit score by over 100 points if you triple your available credit. In some situations, you can end up saving thousands of dollars on interest on a real estate loan or property loan by getting a new credit card first even if you never use the card.
The Cons of Increasing Your Credit Limit
That doesn’t mean getting credit always makes sense. Some types of debt are better for your credit score than others. Too much revolving debt, for instance, can be bad for your credit. Money owed on revolving debt is factored into your credit utilization rate whereas installation debt is not. Having too much owed on credit cards can consequently hurt your credit score.
This speaks to the importance of increasing your credit limit on installment loans and of not using your credit cards too much.
Asset-Backed Commercial Loans
Since installment loans are better for your credit score, personal loans, car loans, and home loans will all benefit your credit score much more than credit cards. Therefore, you might find it worthwhile to get an asset-based loan to pay off your revolving debt. Additionally, the lower interest rate on installment loans and their set payoff date will also save you money in the long run and help you pay off your debts.
There are many types of asset-based loans, including personal mortgages, commercial hard money property loans, and auto loans. A comprehensive analysis of all of your assets and liabilities can help uncover hidden value and opportunities. These opportunities can extend your credit in ways that will help you pay off your debt and increase your credit score.
For more information about commercial hard money loans, call Riverdale Funding at 1-888-368-4983.